Donnelley Buying Firm In $570 Million Deal

December 23, 1989|By Charles Storch.

R.R. Donnelley & Sons Co., trying to stretch its lead over all North American commercial printers, agreed Friday to pay $487.5 million for a large printing partnership between Meredith Corp. of Des Moines and the Burda family of West Germany.

Chicago-based Donnelley said it also will assume about $80 million in debt of Meredith/Burda Cos., bringing the total value of the transaction to about $570 million.

If approved by antitrust regulators, the acquisition would be Donnelley`s largest, easily topping its $285 million purchase of Metromail Corp. in 1987.

Ronald G. Eidell, Donnelley treasurer, said the deal is expected to be financed with a package of debt securities of different maturities. He estimated the acquisition could reduce Donnelley`s 1990 net earnings by up to 4 cents a share, but might contribute 6 to 10 cents a share to 1991 earnings. Analysts are predicting Donnelley will earn $3.20 to $3.25 a share in 1990, up from an estimated $2.90 a share, or about $225 million, on sales exceeding $3 billion in 1989.

On the New York Stock Exchange Friday, Meredith stock closed at $35.25 a share, up $3.37, while Donnelley gained 87 cents, to $48.75.

With the transaction, Donnelley will gain four printing plants for the production of catalogues, tabloids and magazines; three prepress facilities;

and interests in two ink plants. Donnelley also is to sign a long-term contract to print the Meredith publications now produced at those plants.

Meredith publishes such magazines as Better Homes and Gardens, Metropolitan Home and Successful Farming. Donnelley already prints Meredith`s Ladies` Home Journal and Sail magazines and its Better Homes and Gardens Cook Book.

Meredith began printing its publications in 1909. In 1969, it formed a partnership with the Burda family to print its own titles and those of outside customers.

In the fiscal year that ended last June, Meredith/Burda earned $26.2 million on sales of $456.7 million. Its sales are among the top 10 for North American commercial printers. Donnelley`s sales are about twice that of No. 2- ranked Quebecor Inc. of Montreal.

For Meredith, the planned sale will allow it to invest more in its publishing, television broadcasting and real estate marketing businesses, lines whose earnings have been under pressure in recent years.

Jack D. Rehm, Meredith president and chief executive, said Meredith would post a significant gain on the sale, but the exact amount depended on resolution of some tax matters. He said proceeds could be used for

acquisitions or repurchasing some shares.

He said Meredith began considering a sale early this year, when it realized how much it might have to invest to remain competitive in a fast-consolidating printing industry. After discussions with Franz and Frieder Burda, the brothers who own half of Meredith/Burda, the partners decided about six months ago to sell the business.

Rehm said that Meredith/Burda wasn`t ``shopped`` among prospective buyers, but that Meredith approached and initiated discussions with Donnelley a few months ago.

The Meredith board approved the sale Tuesday, while the Donnelley board gave its approval Thursday. Negotiators worked until 4 a.m. Friday before a definitive agreement was signed. It is believed the Burdas, in particular, wanted an agreement before the end of the year because of tax considerations. Eidell said that were Donnelley not to buy Meredith/Burda, it might have to spend $100 million to $150 million over the next few years on added capacity. He said Donnelley plans to keep all Meredith/Burda plants but might close some sales offices and cut jobs that duplicate those at Donnelley.

Meredith/Burda has about 3,200 employees.

Donnelley plants are essentially union-free. All of the Meredith/Burda plants are nonunion, except for its flagship plant in Des Moines.